Nifty's 15-year journey: Financials lord over the index

Weight of oil & gas sector in the index has fluctuated significantly over the last 15 years, says a report from Motilal Oswal

Nifty constituents, over the last 15 years, have undergone a sea change to reflect the underlying changes in the economy. In a recent report, Gautam Duggad and Deven Mistry of Motilal Oswal Research (MOSL) suggest that the weight of financials has seen a secular rise in the benchmark indices, with banking & financial services and insurance (BFSI) now contributing 35.6% (+3.1x in 15 years) weightage in the Nifty-50. 

The share of private banks / NBFC in the index, they believe, has gone up led by: a) better earnings performance, coupled with capital raising from the markets (this boosted the free float of Financials), b) sub-par earnings growth witnessed in other sections of the market over the last eight years and c) index moving to a free float basis from June 2009.

“We note that 15 years back, PSU Banks’ weight (4.7%) was higher than Private Banks (4.4%) in the index, with SBI alone contributing 4.4% of Nifty-50. Today, at 24.3%, private banks have the highest weight in Nifty-50, while PSU Banks have just 3% weight. HDFC Bank, at 9.8%, is the highest weighted stock today, much higher than 1.8% 15 years ago,” the report says.

Weight of oil & gas sector in the index has fluctuated significantly over the last 15 years. This, the report says has been in line with the underlying volatile earnings stream of the sector. The sector weight was at 17.6% 15 years ago. However, with the inclusion of ONGC, it gradually climbed to the 1st position a decade ago to 25.4%. The sector’s weight has been stable at ~11-12% over the last five years with moderation in earnings growth.

Of the Nifty50 stocks, 22 have been part of the index since 15 years. Of these 22, three each are from Technology and Auto (they have been in the index for 15 years now). Private Banks, Consumer, Oil & Gas, Metals, Healthcare and Cement have two stocks each, while NBFC, Capital Goods, PSU Banks and Utilities have one stock in the index. The combined weight of these 22 stocks declined to 62.7% v/s 75.3% 15 years ago, but is up from 44.3% as of December 2007.

Going ahead, MOSL expects the BFSI sector to strengthen its already strong leadership positioning in the index. Within BFSI, private banks’ weightage is likely to move up further as the underlying theme of value migration from public sector banks to private sector banks plays out. 

“The listing of key Insurance companies (life as well as non-life) should further add to BFSI’s weights. Evolution of Small Finance Banks, Payment Banks and New-age NBFCs will also lend support to the weightage of BFSI in the index,” the report says.